Gunning For Ernst & Young With Civil Fraud Charges

Executives at Lehman Brothers and Ernst & Young should breathe a sigh of relief upon hearing the news that New York prosecutors are planning to file civil fraud charges alleging the accounting firm was complicit in misleading investors in the investment bank.

The charges will reportedly arise from Lehman's infamous Repo 105 transactions deals that Lehman allegedly put in place to make its balance sheet look healthier at the moment it was reporting its quarterly results to investors. Basically, Lehman said it was selling assets in deals that were really nothing more than short-term loans. The bankruptcy examiner highlighted these loans back in March.

Why should executives at Lehman and Ernst & Young be relieved?

Because the filing of civil charges rather than criminal charges may signal that prosecutors do not believe they can prove a criminal case. The key difference between criminal and civil charges in these contexts is the quality of evidence and it looks as if New York Attorney General Andrew Cuomo's office has decided it doesn't have the evidence to prove a criminal case beyond a reasonable doubt.

This doesn't rule out the possibility of criminal charges being filed against some Lehman executives. But the chances of that happening are slightly less today than they were before this news.

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